Foundries fight for process tech lead

SAN FRANCISCO—The pure play foundry business is divided into two camps: four companies that offer leading-edge process technology and a host of smaller players that don't. According to market research firm IC Insights Inc., this gulf translates directly into a huge gap in sales.

In a mid-year update to the firm's McClean Report, IC Insights highlighted a separation in foundry vendors' technical capabilities and said the more successful foundries will be those that keep up with the leading edge of the process technology roadmap.

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Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and Globalfoundries Inc. are fighting tooth and nail for leadership in foundry manufacturing technology. Globalfoundries Inc. recently announced that it will offer 14-nm FinFET technology in 2014—a clear shot across the bow of TSMC, the foundry market leader by a wide margin.

Prior to Globalfoundries entrance into the market, TSMC was by far the technology leader in the pure play foundry space. But Globalfoundries has changed the equation, according to IC Insights.

Globalfoundries is projected to derive 65 percent of its 2012 revenue from advanced process technology nodes of 45-nm or below, according to IC Insights. TSMC, by contrast, is expected to derive only 37 percent of its revenue from these advanced nodes, according to the firm.

But, by virtue of its much greater size, TSMC is expected to derive $6.23 billion from 45-nm and below nodes in 2012, compared to $2.79 billion for Globalfoundries, according to IC Insights.

China's Semiconductor Manufacturing International Corp. (SMIC) only recently put its 45-nm technology into production, more than three years after TSMC. Less than 1 percent of SMIC's 2012 sales are expected to be derived from 45-nm and below, according to IC Insights.

United Microelectronics Corp. (UMC), the longtime No. 2 player in the space that was recently surpassed in sales by Globalfoundries, is expected to derive only 11 percent of its sales from 45-nm and below process technology, IC Insights said.

TSMC is projected to derive an average of $1,190 per wafer in 2012, compared to $1,157 for Globalfoundries and $759 for SMIC, IC Insights said.

"There is an obvious correlation between the percentage of sales a major foundry has had over the past 18 months for advanced IC devices and its net income percentage," IC Insights noted.

Relying purely on licensing from partner to move up to the technology value chain is inherently risky. R&D, pilot production and mass production could be very different animals to be tamed. Even it is successful, a good portion of the profit will go to the licensing fee that could significantly undercut its capability to compete during tough time. That is what happened to Taiwanese DRAM industry. On the other hand, develop technology internally requires intensive investment, visionary management, time and miss opportunities. However, if done right, the payoff is significant and such companies are normally the market leaders in their industry or market segment.
Globalfoundries certainly has deep pocket but like to see short term results. Hopefully, they can be successful with their unique combination, and gain long-term competitiveness in pure play foundry. It would be good for the industry. Time will tell.